Sunday, June 28, 2009

Joseph Shereshevsky grew up in Brooklyn’s Borough Park, pictured above in August. The New York City neighborhood is known for its large Orthodox Jewish community and abundance of synagogues. (David B. Hollingsworth | The Virginian-Pilot)

Joseph Shereshevsky was arrested at his home in Norfolk on federal charges of securities fraud. The Securities and Exchange Commission has filed separate civil charges of securities fraud.

The caseThe Securities and Exchange Commission has charged that Joseph Shereshevsky, Steven W. Byers and their company, WexTrust Capital, bilked nearly 1,200 investors by diverting at least $100 million to unauthorized uses in a Ponzi-like scheme.

Movement of funds at WexTrustFederal prosecutors and the Securities and Exchange Commission contend that WexTrust Capital raised more than $255 million from investors for specific projects but diverted more than $100 million to unauthorized uses. In the indictment of Joseph Shereshevsky and Steven W. Byers, federal prosecutors call attention to a WexTrust offering four years ago that raised slightly more than $9 million. WexTrust, according to the indictment, told investors that it would use the money to buy seven specific buildings for lease to the federal government. WexTrust never bought the buildings, prosecutors said, but led investors to believe that the transactions had been completed by sending them deceptive financial statements and tax documents.

Ponzi-like scheme Rather than putting investors’ funds in segregated accounts and using them for specific investments, WexTrust routinely shifted the funds to unauthorized uses, according to charges by federal prosecutors and the Securities and Exchange Commission. These practices took on the characteristics of a Ponzi scheme because WexTrust used funds raised from some of its later offerings to pay what it promised investors in its earlier offerings, prosecutors and the SEC say.

Event's in Joseph Shereshevsky's life

1956: Born in Brooklyn 1993: Pleads guilty in New York state court to attempted grand larceny 1994: Indicted in federal court in New York for trying to defraud a bank by attempting to deposit and cash $328,000 in stolen checks; pleads guilty but fails to show up for sentencing Late 1990s: Changes name from Shereshevsky to Heller 1999: Takes a job in Newport News maintaining an apartment building, gradually takes on other responsibilities for the building owner 2000: Marries Elka Verschleisser, a Norfolk native who was living in Baltimore 2001: Changes his name back to Shereshevsky 2003: Joins WexTrust Capital, becomes chief operating officer, opens a WexTrust office in Norfolk Aug. 11, 2008: Arrested at his home in Norfolk on federal charges of securities fraud. The Securities and Exchange Commission files separate civil charges of securities fraud. At the SEC’s request, the U.S. District Court in Manhattan freezes the assets of WexTrust and Shereshevsky and appoints a receiver to oversee these assets. Aug. 13, 2008: A federal magistrate in Norfolk declines to release Shereshevsky on bail, citing the risk that he may not appear for trial. Shereshevsky is transferred to a federal detention facility in Brooklyn. Sept. 2, 2008: Denies wrongdoing and asks the court to dismiss the complaint in response to SEC charges Nov. 24, 2008: Pleads not guilty to criminal charges of securities and mail fraud

He went by Yossi. Shereshevsky came to Hampton Roads 10 years ago, telling some that he wanted to put an unsavory past behind him.

Overweight, balding and often disheveled - a classic schlub - Shereshevsky quickly gained entry to Hampton Roads' Orthodox Jewish community by applying his apparent piety and knowledge of Judaism. He was invited to join B'nai Israel, an Orthodox congregation in Norfolk's Ghent neighborhood, and married a woman from an influential family.

Already involved with real estate, Shereshevsky opened the Norfolk office of a Chicago-based investment company, WexTrust Capital, and became its chief operating officer and a part owner.

As Shereshevsky accumulated the trappings of wealth, he made a name for himself with his charity and hospitality.

Yossi came off as a real mensch, or good guy in Yiddish.

Then, his carefully cultivated image evaporated.

On Monday, Aug. 11, the FBI arrested the 52-year-old Shereshevsky at his home in Norfolk. WexTrust's chairman and CEO, Steven W. Byers of Oak Brook, Ill., was arrested there. Federal prosecutors in New York charged the two men with criminal securities fraud.

In a separate action, the Securities and Exchange Commission charged that Shereshevsky, Byers and WexTrust bilked nearly 1,200 investors, including many Orthodox Jews. The company and its two executives, the SEC said, diverted at least $100 million to unauthorized uses in a Ponzi-like scheme.

At the first Saturday service after Shereshevsky's arrest, Rabbi Chaim Silver reminded the B'nai Israel congregation that Judaism forbids lashon hara, otherwise known as gossip or evil speech.

Several members of the local Orthodox community have privately expressed anger and embarrassment over the Shereshevsky allegations. The man they thought was a good guy now stands accused of being a ganif - a thief in Yiddish - who used his knowledge of Judaism to swindle his mishpuchah - his Orthodox family.

From his 22nd-floor office in the Dominion Tower, Shereshevsky helped raise hundreds of millions of dollars for WexTrust projects, including office buildings, apartment complexes, warehouses and even diamond-mining ventures in southern Africa.

Now unable to make his $10 million bail, Shereshevsky remains in federal custody in New York. He faces 25 years in prison on the criminal charges if convicted. A trial has not been scheduled. His assets and those of his wife are frozen, but WexTrust victims have been told they are unlikely to recover more than a fraction of what they invested.

When arraigned in November on the criminal charges, Shereshevsky pleaded not guilty. In response to the SEC's charges, he denied wrongdoing and asked in September that its complaint be dismissed. Shereshevsky contends that he relied on the expertise of a WexTrust officer who had authority and control over each of the investments cited by the SEC. He did not respond to a letter from The Virginian-Pilot requesting an interview for this story.

Many of the details in this story come from court documents in the SEC and federal cases and other public records where Shereshevsky is named, as well as interviews with those who knew him in Hampton Roads and New York.

Shereshevsky grew up in Brooklyn's Borough Park, a New York City neighborhood known for its large Orthodox Jewish community and abundance of synagogues.

His father, now deceased, was a highly regarded rabbi and scholar, and the younger Shereshevsky attended a respected yeshiva, where students concentrate on the study of classical Jewish texts.

While in his 20s, Shereshevsky began working in the diamond business and raising a family in Brooklyn. He was smart and a skilled chess player, said Don Greenstein, a retired math teacher who belongs to the synagogue Shereshevsky attended.

Shereshevsky had a knack for making people feel at ease, and he could be generous with his money, Greenstein said. When his older brother was in a car accident that made him a quadriplegic, Shereshevsky helped pay for his brother's care, Greenstein recalled. "I remember, he often tipped the guy who delivered medical supplies to the home."

Shereshevsky, he said, enjoyed betting on pro football, especially on the New York Giants and Jets. Financial problems related to gambling derailed his career and marriage in the early 1990s, said Greenstein, adding that Shereshevsky still owes him $50,000.

He attracted attention in New York's large Orthodox community for refusing for years to give his first wife a get, or divorce.

In 1993, he pleaded guilty to a state charge of attempted grand larceny. In his plea agreement, Shereshevsky described having someone threatened with physical injury because "this guy owed me money for approximately four years."

In 1994, Shereshevsky was charged in a Manhattan federal court with bank fraud after attempting to deposit and cash $320,000 of stolen checks. He pleaded guilty later that year to one count of bank fraud but failed to show up for sentencing.

At some point, he left for Israel.

When he returned to the United States, Shereshevsky set about the task of reinventing himself. He took the last name Heller, his mother's maiden name, and, instead of returning to Brooklyn, he used his connections to line up a job at a Newport News apartment complex in 1999.

His transformation was interrupted briefly when he was arrested in March and sent back to New York for sentencing in the bank fraud case. Because of his earlier cooperation with federal prosecutors on another case, the judge sentenced him to two years' "supervised release" and ordered him to repay the bank nearly $39,000. He returned to Newport News.

The owner of the apartment complex promoted Shereshevsky to apartment manager. By 2000, he was overseeing apartment complexes in Norfolk, Portsmouth, Newport News and Petersburg and scouting for real estate investments for his boss.

The owner bought older apartment buildings with plans to upgrade them, "but that never came to pass," said Beverly Jones, a Suffolk property manager who worked with Shereshevsky at the time. She left the company, she said, because it routinely cut corners and Shereshevsky made her uncomfortable at work. "I felt like I was working for the mob," she said.

While living in Newport News, Shereshevsky began hanging out at a Norfolk deli, The Kosher Place Cafe & Market on 22nd Street in Ghent. He was in his element there, getting to know the employees and other regular patrons, talking about food - a favorite topic - and faith.

"I took a liking to him because of his deep knowledge of Judaism," said one Norfolk businessman who befriended Shereshevsky. "He was personable and fun to be around."

This person and others described their dealings with Shereshevsky on the condition that their names not be used. Many others simply declined to discuss him.

Shereshevsky was invited to join the nearby B'nai Israel synagogue, which serves about 225 Orthodox families. He met Elka Verschleisser, a Norfolk native who had been living in Baltimore. Verschleisser is a member of the Peck family, which has been influential in the region's Jewish community and in business circles. The two married in 2000.

"That gave him clout," said a WexTrust investor who knows the couple well. For some Orthodox Jews, their trust in Shereshevsky became absolute, the investor said.

But there were questions, mostly about his use of different last names. He changed his name from Heller back to Shereshevsky in January 2001. He explained that he adopted a different name because he had done things that he wasn't proud of and was trying to make a fresh start, the businessman who befriended him recalled.

In Judaism, "you give everyone the benefit of the doubt," the man added. "He got a bye to reinvent himself. That's why he was able to fit into this community."

As the doors to B'nai Israel opened, so did new opportunities.

During his travels, Shereshevsky met Stev en W. Byers, a Chicago real estate investor who helped finance some of the apartment complexes that Shereshevsky managed. Byers and an associate had launched WexTrust Capital in 2003 and brought Shereshevsky aboard as a partner to help them raise money. Two years later, Byers and Shereshevsky set up a securities brokerage in Norfolk to handle offerings of WexTrust investments.

Shereshevsky's education was limited to high school and the yeshiva, his wife testified at his bail hearing. And he wasn't licensed to sell securities, according to the SEC. What he had was a combination of street smarts and connections, many in the local Jewish community.

He befriended Yosef Friedman, B'nai Israel's rabbi at the time, and his stature in the congregation grew.

People could see he was a success. In 2007, he and his wife, Elka, received more than $1.2 million in commissions from sales of

WexTrust investments on top of the salaries the couple collected.

And Shereshevsky was charitable. He, along with his wife and their two children, opened their million-dollar Maury Avenue home to members of their congregation for Friday evening Shabbat. He helped establish an Orthodox day school in Portsmouth named after his father, the Rabbi Chaim Shereshevsky Institute of Mesorah Learning. He sponsored a summer day camp for local children. He sent a private jet to Jamaica to rescue an Orthodox teen who said he was being abused at a reform school. He and his wife made loans to WexTrust employees and paid for relatives' utilities and auto repairs.

When it appeared two years ago that members of the Maury High School band would have to pay for their seats at some of the Norfolk high school's football games, Shereshevsky donated $1,800.

"Every Saturday, when we go to the synagogue, these kids are out there practicing" on the Maury field, Shereshevsky told a Virginian-Pilot reporter when he announced his donation.

He seemed like a good guy, said one man whose elderly mother had been a frequent guest at the Shereshevsky home. She put her retirement savings into a WexTrust real estate investment five years ago despite her son's warning that it was too risky for a widow in her 80s and that the promised returns seemed too good to be true. She refused to move her money, the son said. "I stopped bugging her about it."

When some prospective investors learned that Shereshevsky had served time in prison, they demanded an explanation before committing any money. He told them he had been jailed briefly over a child-custody dispute with his first wife and dismissed the episode as "no big deal," said one local investor. They believed him.

At WexTrust, Shereshevsky assembled a sales team that included the scions of some of the region's prominent Orthodox families. They promoted WexTrust to their relatives and friends.

Stewart Smokler invested $21,000 in a commercial real estate project in 2003, he said. The investment paid off, so the 71-year-old Virginia Beach resident made others and recommended WexTrust to friends.

He went to work for WexTrust in 2004. He estimated that the company had about 20 employees in Norfolk at that time, including eight who worked on sales of investments.

The company took out ads in the Jewish Press and on a weekly radio show on WNIS-AM hosted by Paul "The Crunchman" Clemmons, a former mortgage broker. The ads lasted only a short time, but Clemmons invested with WexTrust himself and recommended the company to individuals who sought his advice.

"I had a client who said they had been listening to Paul and they were about to buy an investment property in Sandbridge; they were neighbors and friends and did their due diligence and invested in WexTrust real estate instead," Smokler said.

Smokler believed in WexTrust. He stands to lose a half-million dollars from his WexTrust investments and still wonders whether the company's demise was because of fraud or mismanagement.

"I really thought until the very end that it was a legitimate business," he said.

WexTrust raised more than $255 million, much of it for real estate but some for high-yield loan funds and commodity funds. More than $40 million went to diamond mines in southern Africa.

In separate allegations of securities fraud, federal prosecutors in New York and the SEC cited how WexTrust raised funds for specific projects and routinely shifted the money to unauthorized uses.

The criminal case cites an offering in which WexTrust raised $9 million from investors and promised to buy seven specific buildings and rent them to the federal government.

WexTrust never bought the buildings and put the money to other uses, prosecutors allege. However, investors were led to believe that the transactions took place because WexTrust sent them deceptive cash-flow statements and tax documents for GSA Investors LLC.

"The commingling was systematic. It was extensive," Timothy J. Coleman, WexTrust's court-appointed receiver, told a meeting of WexTrust investors in Chesapeake in April. "It started from Day One and continued all the way up to August 2008."

Before then, erratic payments to investors triggered complaints and concerns. In a May 2008 complaint to the Illinois attorney general, an unidentified investor wrote: "I feel their house of cards is about to collapse, leaving investors holding the bag."

A deteriorating real estate market last year made it increasingly difficult for WexTrust to pay what it promised to investors.

In March 2008, Shereshevsky warned Byers in an e-mail that they would have to operate the company differently.

"We have faked it until we made it for long enough and now we must clean up," Shereshevsky said, according to e-mail excerpts that the SEC included in its complaint against Shereshevsky, Byers and WexTrust.

The SEC began an examination of WexTrust Securities' New York office in April 2008. On Aug. 1,

Wachovia Bank froze several of WexTrust's accounts in response to a Justice Department notice.

On Aug. 11, the FBI apprehended Shereshevsky. He was leaving that day for Israel and England.

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